July 15, 2009

Gliebers Dresses: List Rental and Sarah Wheldon

Welcome to another Executive meeting at Gliebers Dresses (please click on the image to enlarge it):

Glenn Glieber (Owner): "... so I never, EVER, expected this. Anna Carter sent out a press release this morning, announcing that Sarah Wheldon, our very own Sarah Wheldon, has been hired as a Sr. Vice President of Consumer Insights. That's bad enough. But get this, folks. The press release says that Ms. Wheldon is immediately cutting off list rental and list exchange activities with all major competitors. This means that we no longer have unfettered access to the Anna Carter buyer file. As the kids say, 'OMG'."

Meredith Thompson (Merchandising): "Kevin, is that you?"

Kevin: "Yup, it's me!"

Meredith Thompson: "Kevin, have you run the scenario I asked you to run for us this morning?"

Kevin: "Yes, I ran it. You have the slide in front of you. Basically, Anna Carter is saying that you can no longer rent or exchange lists with them. At this time, 13% of the new customers you acquire are from the Anna Carter customer file."

Roger Morgan (Operations): "You must be kidding. Are you telling me that without access to the Anna Carter customer file, we will lose 13% of our new customers?"

Kevin: "Unless you find a new source of names to replace those you'll lose, then yes, that's what I am saying."

Candi Layton (Chief Customer Officer): "Kevin, are you saying that we rent and exchange names with other companies?"

Pepper Morgan (Interim Chief Marketing Officer): "Yes Candi, renting and exchanging names with your biggest competitors is an established best practice in the catalog industry."

Candi Layton: "How long have we been doing this?"

Meredith Thompson: "About forty years."

Candi Layton: "Forty years? Are we nuts? How many customers absolutely hate us for doing this? This is a terrible customer experience. A customer trusts us, she buys from us, and the minute the transaction is complete, we rent her name to another company --- worse, we rent her name to our biggest competitor? Think of all the trees we cut down, for no good reason. Do we pay the customer royalties each time we rent her name?"

Meredith Thompson: "Absolutely not. But we do make about $250,000 a year in sheer profit by renting our customer base to competitors. Right now, that income is the difference between us being profitable and having to lay off another five employees."

Kevin: "Ok, here's what the slide says. If we are not able to gain access to new names that perform as well as the Anna Carter list, then the customer file will begin to decay. Over the course of the next five years, Gliebers Dresses will lose $2.5 million in profit because there won't be enough new customers to fuel the growth of the business. In five years, the business will be at $56 million instead of $64 million. That's what the data in the slide tells us."

Pepper Morgan: "Wow. I love Multichannel Forensics! But I hate what it tells us."

Roger Morgan: "She's downright vengeful, that Sarah Wheldon. How can she do this to us? Didn't we offer her a generous severance package when she retired?"

Candi Layton: "Absolutely. But she elected to not sign the document. She turned down a boatload of money to stay retired for a year. Had she taken the money, she couldn't work for any competitor for one year."

Roger Morgan: "She's basically their Chief Marketing Officer now. Maybe that's not so bad. A recent Neptune Research report said that the average tenure of a Chief Marketing Officer is only 23 months, so she won't be there all that long."

Pepper Morgan: "HEY!"

Roger Morgan: "I'm just saying that's the average. The average CMO at Gliebers Dresses lasts longer."

Meredith Thompson: "You know, we're going to have to be nimble, here. This is something like five percent of our circulation that just disappeared for the Fall. Can't we just go to our favorite co-op, ResponseShop, and just ask for replacement names?"

Kevin: "You could do that, though the names probably won't perform all that well. That being said, there aren't a lot of short-term options available. However, there will be names that come out of the merge that you'll get through the co-op that are on the Anna Carter mailing list, so you'll get some of the sales back that way."

Candi Layton: "Can you explain what a co-op is?"

Meredith Thompson: "A co-op is a company that we send the name and address of all of the customers who recently purchased from our business. The co-op compiles this information from numerous competitors, creates a bunch of equations and algorithms that rank-order potential customers from best to worst, and then sells the best customers to all of us. We get to mail names that haven't purchased from us for something like $0.04 or $0.05 or $0.06 per name --- the rates vary based on the size of each business, and the ability of somebody in the legal or marketing department to negotiate the best possible rates. We get one time use of the name."

Candi Layton: "Does the co-op pay a royalty to the customer, since the co-op is making all of this money off of the customer?"

Meredith Thompson: "Oh heavens, no, Candi."

Candi Layton: "Does the co-op pay a royalty back to us, like in list rental?"

Meredith Thompson: "No".

Candi Layton: "So let me get this straight. We rent out our list to competitors, and we get a royalty. We also get access to their buyers, so that we can grow our business. And then we willingly provide name and address to this thing called a co-op. They basically re-shuffle the deck, pull out all of the black cards, and then re-sell us the good red cards, the face cards that we don't already have, if you will. We don't get a royalty, and the customer isn't paid a royalty, but the co-op gets paid over and over and over and over and over and over again for the same name and address. That's the business practice we've been engaging in for the last forty years?"

Meredith Thompson: "Yup. Well, we've only participated in the co-ops for the past thirteen years."

Candi Layton: "How does the customer benefit from all of these shenanigans?"

Meredith Thompson: "I don't think of these as being shenanigans, I think they are best practices."

Lois Gladstone (Chief Financial Officer): "I don't think the customer benefits at all. Everybody seems to be profiting from the customer --- especially these co-ops, but the customer just ends up with a mailbox full of catalogs from Anna Carter that she never asked for. This is why we need to focus on customer loyalty and get out of this expensive customer acquisition stuff."

Candi Layton: "I'm thinking we should put a six month moratorium on all list rental and co-op activities, until we can think of a better way to protect our customer."

Meredith Thompson: "Have we collectively lost our minds?"

Roger Morgan: "Didn't Chip Cayman say that social media is a great way to get new customers for free?"

Glenn Glieber: "I love free marketing!"

Kevin: "Ok folks, I've been listening to this conversation, and you're going down an interesting path. I just ran a quick scenario, assuming you discontinued all list rental and co-op mailings. If you choose to do that, your business begins to erode ... to $48 million this year, then $37 million next year, then $31 million, then $29 million, and finally $28 million. Worse, you'll lose a lot of long-term profit ... $8.7 million over the next five years. Essentially, you'll be out of business."

Candi Layton: "You mean if we stop abusing our customers and we stop abusing the customers who shop from competitors, we'll be out of business?"

Kevin: "The secret is to find new ways to acquire customers, new ways that do not, as you say, 'abuse' the customer. Until there is a strategy in place that allows you find new customers in a cost effective, 'opt-in' manner, you are tethered to the list rental and co-op business model."

Roger Morgan: "That Sarah Wheldon really stuck it to us, didn't she? Think about this. She tethers us to a horrible list rental and co-op practice that isn't customer friendly, then retires, then goes to our biggest competitor and cuts us off when she knows darn well that we have to have access to these names or we go out of business. She's been playing us all along, I think."

Meredith Thompson: "Impossible. We've worked with Sarah forever, decades in my case. She's angry at us, and Anna Carter took advantage of a golden opportunity to put a stake in the heart of a competitor."

Pepper Morgan: "It's so much worse than sticking it to us, Roger. Remember last night when we were talking over dinner about all of the Multichannel Forensics stuff we've learned over the past two months? Well that's all common knowledge now, because Sarah Wheldon is at Anna Carter, and she's going to share every single detail with those folks --- every single detail. She'll tell them the ins and outs of our loyalty program, she'll tell them about our five year sales forecast predicated on customer behavior across channels. She'll tell them that we retain 53% of our buyers. She'll share the results of every mail/holdout test that Bow Tie Guy executed. They're already thinking of shutting down the catalog, now they've got more data to support either side of their decision. And if they are going to shut down their catalog, they don't care about participating in list rental, they don't care about being in the co-ops."

Lois Gladstone: "That Sarah Wheldon really stuck it to us. We need to take legal action against her."

Candi Layton: "What would you have done if you were Sarah Wheldon?"

Lois Gladstone: "I would have taken the money and truly retired. I'd be sitting on the deck of a cabin in Northern Vermont drinking Jagermeister every night."

Candi Layton: "That money only lasts for a year or so, then what? You eventually need to go back to work. We all knew this day was coming, we just didn't expect it to happen two days after she officially retired from Gliebers Dresses."

Glenn Glieber: "It's time for us to move on, the past is the past. We survived
Rebecca DeBarton and Chance Hawthorne. We'll survive Sarah Wheldon, too. Now let's go to the next topic on the agenda. We need to find $100,000 to fund Candi Layton's customer initiatives. Pepper, I'd like to see where in marketing you can cut the budget so that we can fund her customer initiatives. Please have a plan on my desk by 4:00pm today."